‘Green washing’ rife as ethical investing dollars roll in'
An Article by the Sydney Morning Herald highlights the threat that the Australian Council of Superannuation Investors pose against the directors of companies that don’t respond adequately to climate-related risks.
The Australian Council of Superannuation Investors’ threat to vote against the re-election of directors of companies that don’t respond adequately to climate-related risks is another strand in a global and accelerating trend towards fund manager activism on environmental, social and governance issues.
While ACSI’s track record on activism is fairly solid – its predominantly industry fund base has tended to put its money where its mouth is – that’s not necessarily, however, the case for all funds that have joined the scramble in recent years to label themselves as ethical investors.
Indeed, there is considerable “green washing” occurring as fund managers try to exploit the flood of investor money into ESG-labelled funds, particularly those that portray themselves as active on climate change-related issues. The pace of that flow of funds into sustainable investing has accelerated sharply since 2019. In the US last year an estimated $US51 billion ($65.5 billion) flowed into ESG funds, twice the level of 2019. Globally the sustainable investment industry is now thought to manage more than $US3 trillion of funds.
The fund managers are being drawn to sustainable investing because the increased interest of investors in investing with a social conscience means that’s where the money and the management fees are heading. It’s also where the superior returns are. There’s been a lot of research to show that ESG funds produce better returns than funds that don’t have an ESGoverlay.
It is unclear whether that’s because the companies they invest in have management more in tune with their communities; attract better employees or whether the flows of funds from “socially responsible” investors have a positive impact on share prices and funds returns.
With the Biden administration in the US planning to spend $US1 trillion on climate-related policies over the next eight years and most of the major economies committed to reducing carbon emissions the size of the ESG industry is likely to swell much further as fund managers look to get their share of the trillions of dollars that will flow into climate-related investment.
How true-to-label these funds are is going to be a question of increasing interest to companies, investors and regulators as the size and influence of the sector grows.
There are plenty of stories of large funds with supposed ESG investment credentials that hold shares in companies that don’t conform to their stated policies, or vote contrary to their stated ESG policies or don’t vote at all on contentious ESG-related issues.
'The fund managers are being drawn to sustainable investing because the increased interest of investors in investing with a social conscience means that’s where the money and the management fees are heading.
Earlier this month the US Securities and Exchange Commission issued a “risk alert” for investment advisers and funds related to ESG investing. The SEC has, for several years, been reviewing the practices of funds that profess to be socially responsible investors and which market themselves as investing only in companies that are pursuing ESG-supportive strategies.
In 2019 it wrote to fund managers and asked them for lists of the stocks they were invested in or their advisers had recommended; for the models and processes the managers used to assess the ESG credentials of the companies they invested in and for their proxy voting records on ESG-related issues.
'If companies want a social licence to operate and to lower their costs of capital and fund managers want to attract funds and generate income from ESG-aware investors they now have to have policies, and practices, that meet the new and strengthening community and investor expectations.'
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